Buy-Sell Life Insurance

If your business is owned by more than one person, it is imperative that there is a written agreement stipulating what will happen to an owner’s business interest when he/she dies; The Buy-Sell Agreement.

Does that interest pass to the deceased’s heirs or is the interest purchased by the surviving owners? In most cases, it is desired that the heirs (unless they are active in the business), receive cash for the deceased’s interest and the remaining owners continue to operate unencumbered by demands on inactive owners.

Presuming that the heirs will be bought out, and in order to assure that the cash is available to properly carry out the terms of the written agreements, upon the death of an owner, the business should purchase a life insurance policy on each owner where the proceeds are paid to the company.

The amount of the insurance should be at least the value of the business interest. To not have the agreement funded in this manner and to presume that the company can pay for the ownership interest out of its profits, is to ignore the hardship it will impose on the survivors - especially since one of the owners is no longer producing.